RBI Annual Report: Stress tests indicate banks have sufficient capital even in severe scenario – Moneycontrol.com

Rajesh Earlier, Bansal served at the RBI in various capacities in the areas of technology, financial inclusion and payment systems.

Rajesh Earlier, Bansal served at the RBI in various capacities in the areas of technology, financial inclusion and payment systems.

Stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario, the Reserve Bank of India (RBI) said in its annual report on May  27, 2021.

Bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas, the RBI said in the report.

With the lifting of the interim stay on asset classification standstill by the Supreme Court on March 23, 2021 banks’ asset quality will need to be closely monitored in coming quarters, with preparedness for higher provisioning, the RBI said.

The waiving of interest on interest charged on loans during moratorium period (March 1, 2020 to August 31, 2020) may also impinge on lending institutions’ finances, the report said.

“They are, however, better positioned than before in managing stress in balance sheets in view of higher capital buffers, improvement in recoveries and a return to profitability,” it said.

Last year, the RBI announced a six months moratorium for all term loan borrowers in the wake of Covid impact on borrowers. The moratorium was provided immediate relief to stressed borrowers and helped banks to avert an immediate spurt in bad loans.

The RBI, in an effort to boost provision of immediate liquidity for ramping up COVID related healthcare infrastructure and services in the country, an ontap liquidity window of Rs50,000 crore with tenors of up to three years at the repo rate was opened till the end of 2021-22.

Also, the RBI announced  a special three-year long-term repo operations (SLTRO) of Rs10,000 crore at the repo rate for the SFBs to be deployed for fresh lending of up to Rs10 lakh per borrower.

“In order to expand system-level liquidity further and enable the orderly evolution of the yield curve the second purchase of government securities of Rs35,000 crore under G-SAP 1.0 was also announced,” the RBI said.

RBI to ensure liquidity

The RBI will ensure that system level liquidity will remain comfortable during 2021- 22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability, the RBI said.

“This is exemplified by the introduction of the secondary market G-sec acquisition programme (G-SAP) in 2021-22 under which the Reserve Bank has committed upfront to a specific amount for open market purchases of G-secs with a view to enabling a stable and orderly evolution of the yield curve under congenial financial conditions,” the RBI said.

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